What is a product life cycle and what marketing strategies are appropriate at each stage.
No product lasts forever
The most important thing to understand is that no product lasts forever. There are ways to extend a product’s life cycle, but eventually, every product will become obsolete at one point in the future.
Additionally, as economic conditions change, competitors launch new assaults and the product passes through new stages of buyer interest and requirements, different strategies are required in order to expand the product’s life and profitability as much as possible.
Product life cycle
The concept of product life cycle is based on the following observations:
- Products have a limited life.
- Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller.
- Profits rise and fall at different stages of the product lifecycle.
- Products require different marketing, financial, manufacturing, purchasing, and the human resource strategies in each stage of their life cycle.
The typical product life cycle follows a bell-shaped curve that is a function of sales and profits over time. This curve can be divided into four stages:
- Introduction – a period of slow sales growth as the product is introduced in the market. Profits are nonexistent at this stage because of the heavy expenses incurred with the introduction.
- Growth – a period of rapid market acceptance and substantial profit improvement.
- Maturity – a period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased marketing outlays to defend the product against competition.
- Decline – a period of sales and profits erosion.
Product Life Cycle: Bell-shaped Curve
When product sales don’t follow a bell-shaped curve
While the bell-shaped curve is typical, product lifecycles can exhibit many different alternate patterns. For example:
Growth-slump-maturity pattern – after a period of strong growth, sales decline dramatically only to stabilize at a certain level. An example of a product that exemplifies this is the electric kitchen knife. The sales of electric kitchen knives grew rapidly when first introduced and then fell to a much lower level. This lower level has been sustained by late adopters buying the product for the first time and early adopters replacing the product.
Cycle-recycle pattern – the period of growth and subsequent decline is followed by another period of growth and decline. A good example here are drugs. The pharmaceutical company aggressively promotes its new drug resulting in the first growth cycle. When sales start declining the company gives the drug another push, which produces a second cycle. The subsequent cycles are usually off smaller magnitude and duration.
Scalloped pattern – here sales pass through a succession of growth periods based on the discovery of new product characteristics, uses, or users. Nylon sales, for example, display a scalloped pattern because, over time, new and a new uses have been discovered—parachutes, hosiery, shirts, carpeting, etc.
Style, fashion and fad
Style, fashion and had each display a different lifecycle curve.
Style – a basic and distinctive mode of expression. Once invented, styles can last for generations, going in and out of vogue.
Fashion – a currently accepted or popular style in a given field. Fashions pretty much follow the typical bell-shaped product lifecycle curve.
Fad – are fashions that come quickly into the public eye, are adopted with great zeal, peak early, and the decline very fast. Fad acceptance cycle is short and they tend to attract only a limited following.
Product lifecycle on an international scale
Lifecycle of the same product can be in different stages in different countries because product adoption occurs throughout the world at different rates. Sometimes it may happen that a late-adopting country can produce the product more economically and become a leader in exporting the product to other countries.
For example, Chinese manufacturers often copy US products and sometimes even become exporters to the US and start competing with the original US manufacturers. To prevent cases like that, the best defence is for US manufacturers to become global marketers and open production and distribution facilities in countries with large markets and/or lower costs. As a result, they are able to not only produce the product cheaper, but also expand the product lifecycle by moving the product into countries that are getting ready to use it, long before copycats emerge.
Each stage of the product life cycle requires different marketing strategies.
1. Introduction stage
The introduction stage is characterized by a low sales, higher costs per customer, low or negative profits and few if any competitors. The type of customers buying the products are usually the innovators.
Your marketing objective during the introduction stage is to create product awareness and to entice the customers to try the product.
Your choice of marketing strategies is quite broad here as you can use up to four different marketing variables at different levels. These variables are: price, promotion, distribution, and product quality.
For example, using the high and the low levels of just two marketing variables: price and promotion, you end up with an array of four possible marketing strategies:
Rapid skimming – the new product is launched at a higher price and promoted heavily. The idea behind charging high price is to recover as much profit per unit as possible. The high promotion helps to accelerate the rate of market penetration. This is a good strategy when a large part of the potential market is unaware of the product, when those who become aware of the product are eager to have it and can pay the higher price, and when the company faces potential competition and wants to build brand preference quickly.
Slow skimming – the new product is launched at a high price while keeping the promotion at a lower level. The high price helps to recover as much profit per unit as possible. The low promotion keeps marketing expenses down. This strategy is a good choice when the market is limited in size, when most of the market is aware of the product, when buyers are willing to pay a high price, and when potential competition is not imminent.
Rapid penetration – the new product is launched at a low price and promoted heavily. This strategy makes sense when the market is large and unaware of the product, when the most buyers are price-sensitive, when there is strong potential competition, and when the product can be manufactured cheaply.
Slow penetration – the new product is launched at a low price while keeping the promotion at a lower level. The low price will and courage rapid product acceptance. Low promotion costs will bring profits up. This strategy makes sense when the market is large, highly aware of the product and price-sensitive, and when there is some potential competition.
2. Growth stage
The growth stage is characterized by rapidly rising sales, rising profits and growing number of competitors. The typical buyers are early adopters and the cost per customer is average.
Your marketing objective during the growth stage is to maximize the market share.
Your choice of marketing strategies during the growth stage include:
- Improving to product quality, styling and adding new features.
- Adding new models and flanker products to protect the main product.
- Entering a new market segments.
- Increasing distribution coverage and entering new distribution channels.
- Shifting from product-awareness advertising to product-preference advertising.
- Lowering price to attract the next layer of price-sensitive buyers.
The main trade-off you will face during the growth stage is between high market share and high current profit. Your best strategy will include foregoing maximum current profit in favor of building a dominant position in the market.
3. Maturity stage
Maturity stage is characterized by peaking sales, stable or declining number of competitors and high profits. Your typical consumers will be the middle majority and your costs per customer will be low.
Your marketing objectives during the maturity stage includes maximizing profits while defending your market share.
The typical marketing strategies during the maturity stage include:
Market modification – expanding the number of brand users and/or increasing the annual usage of the brand. The number of brand users can be increased by converting nonusers, entering new market segments, or targeting competitors’ customers. Increasing the annual usage of the brand by current customers can be done by getting the customers to use the product more frequently, getting them to buy more volume per occasion, and convincing customers to use the product in more varied ways.
Product modification – stimulating sales through quality improvement, feature improvement or style improvement. Quality improvement aims at increasing the product’s functional performance, such as durability, reliability, speed, or taste. Feature improvement aims at adding new features that expand the product’s versatility, safety, or convenience. Style improvement attempts to link these the product’s aesthetic appeal.
Marketing-mix modification – involves modification of other marketing-mix elements, including price, distribution, advertising, sales promotion, personal selling, or services.
4. Decline stage
This stage is characterized by the decline in sales. Sales may plunge to zero, or can stabilize at a low level. The reason sales decline could include a number of reasons, such as technological advances, shifting consumer tastes, increased domestic and foreign competition, etc. The result is overcapacity, price-cutting and profit erosion.
Your marketing objectives at this stage should be to either reduce expenditures and milk the brand, or strengthen your position to dominate the remaining market.
Before you can set your marketing strategy, you need to identify the weak products first. Next, you want to analyze the behavior of your competitors in the given situation and their competitive strength in that industry.
Once you have done your data collection and assessment, you can select from the following :
- Increase the overall investment in order to dominate the market and/or strengthen your competitive position.
- Maintain the overall until the uncertainties about the industry are resolved.
- Decrease the overall investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the investment in lucrative niches.
- “Milk” your investment to recover cash quickly.
- Divest the business quickly by disposing of its assets as advantageously as possible.
Product life cycle pitfalls
The product lifecycle concept is useful for illustrating product and/or market dynamics. It also helps to pinpoint the main marketing challenges in each stage of a product’s lifecycle.
However, it is not always obvious what stage of product lifecycle a product is in. A product may appear to be mature when actually it has only reached a temporary plateau prior to another upsurge. Additionally, the frequent changes in technology and marketplace can further affect the product lifecycle pattern or even completely change it.
In fact, the product life cycle pattern can be dramatically affected by your choice of marketing strategies. In other words, unless your market intelligence data undisputedly point to a particular product lifecycle stage, more likely than not it is you and your choice of marketing strategies who decides what stage your product will be.
Reference: Kotler, P.: Marketing Management. Analysis, Planning, Implementation and Control. 9th Edition (Prentice-Hall, Inc. 1997)